April 20, 2024 4:24 am
Evaluating Esisuisse’s Protection Against Bank Runs

In times of crisis, people are often anxious about the safety of their money in banks. This is especially true in Switzerland, where the organization Esisuisse plays a crucial role in securing bank deposits and preventing panic withdrawals. Founded 40 years ago, Esisuisse ensures that bank customers are protected up to 100,000 francs per customer and banking relationship in the event of a bank’s bankruptcy.

Despite its importance, Esisuisse remains relatively unknown, both domestically and internationally. The organization has been subject to scrutiny, particularly from the International Monetary Fund (IMF), which has identified certain shortcomings in the Swiss deposit protection system. One key point of contention is the limited coverage of insured deposits and the lack of alternative financing mechanisms if the existing funds are insufficient.

The IMF has called for reforms to strengthen deposit protection in Switzerland, including the establishment of a fully pre-financed fund and broader functions beyond simply paying out deposits. However, proponents of the Swiss model argue that certain ambiguities in the system can be disciplinary and prevent moral hazard. They point to the fact that stronger deposit insurance may not have prevented crises like the one experienced by Credit Suisse, which primarily affected unsecured deposits.

While some argue that Switzerland’s deposit protection system needs improvement, others believe it is effective as it is based on self-regulation by banks and a private association (Esisuisse). The country remains committed to its unique approach, which relies on a combination of self-regulation, pre-financing of deposits, and limited state involvement. As financial landscapes continue to evolve globally, it will be interesting to see whether Switzerland makes significant changes to its deposit insurance framework in response to international pressure or if it maintains its current approach with slight tweaks or modifications.

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